Director’s loan account – ways to repay a loan

When you are ready to repay a loan there are a number of ways this can be done. The simplest way is often to vote a dividend and use it to reduce the balance of the loan.

A Director’s Loan account is a record of money that a director has borrowed or loaned to the company. The loan can have tax implications therefore it is important to understand these whilst a loan is in place.

Repaying a loan using dividends

The simplest way to reduce a directors loan is to vote a dividend but instead of paying the dividend to the shareholder, use it to reduce the loan account. This saves having to transfer cash out of the business account for the dividend and back in to pay off the loan.

Firstly vote the dividend as normal for the amount you require. Once done you’ll have a pending payment for the dividend in your bookkeeping screen.

Then to use this to reduce a loan:

1. In your bookkeeping screen, select the director’s loan account
2. Click on the pending payment for the dividend to mark it as paid
3. Enter the transaction date and click the match checkbox, then save

This will reduce your directors loan by the amount you matched within that pending payment.

Repaying a loan using expenses or salary

It is possible to use other money owed to a director to reduce a loan. For example, if a payslip has been generated that has salary and expense reimbursements to the director, instead of paying this into the directors personal account it can instead be used to pay off a loan.

When you have a pending payment for an amount that is due to be paid to the director in the bookkeeping screen, e.g. a payslip or some expenses, to reduce a loan:

1. In your bookkeeping screen, select the director’s loan account
2. Click the icon to the right of the pending payment that is due to the director to mark it as paid
3. Enter the transaction date and click the match checkbox, then save

This will reduce your directors loan by the amount you matched within that pending payment.

Repaying a loan using cash

If you are repaying cash back into your business to reduce or clear a loan, once you have transferred the funds to your business bank accounts you will need to credit your directors loan account to reduce it’s balance.

To credit your director’s loan account:

1. In your bookkeeping screen, select the director’s loan account
2. Click [Enter Company Transaction] > [Transfer to another account]
3. Enter the date, description, amount, and select transfer to Business Bank Account. If for example you are repaying your company the £5,000 loan, enter it as a positive amount
4. Check the match box and then press Save

The balance of your director’s loan account will be updated and in the example below where the full amount of the loan is being repaid, the balance of the director’s loan is now zero.

Then update your business bank account:

Whilst still in the bookkeeping screen, change your account to your Business Account so you can see your bank transactions.

You’ll see a transaction has been created automatically for the director’s loan, in the example below, £5,000 credit. This transaction awaits confirmation (reconciliation) that you have paid the money into your business account.

Simply click to edit the transaction and check the box to match the details (date and amount) in inniAccounts to match exactly those shown on your business bank statement.

You have now successfully recorded the repayment of your loan to the company and updated your director’s loan account.

To check that this has worked as expected, your LiveCash will have been updated with the new balance of the director’s loan.